Comfort Delgro

Comfort Delgro: SCB upgrade to O/p with a $2.21 TP. The house argues that CD is the best-managed land transport company in the world, with a consistent track record of moderate earnings growth and shareholder value creation. Consolidation in the Singapore taxi market, combined with CD’s dominant market position, should support the segment accounting for half of CD’s operating growth in 2014E. The recently approved bus fare rises taking effect in April 2014 should similarly help CD’s core bus business break even before advertising and commercial rents are taken into account. While ongoing start-up costs of the Downtown Mass Rapid Transit (MRT) Line will likely suppress contributions from the rail business, the house expect a strong recovery from this segment in 2016 and beyond. M&A opportunities in the Australia bus and China taxi businesses are an upside risk to our modest 2013-16E earnings CAGR of 4.5%. Think the company’s improving growth prospects justify a higher-than-historical-average valuation and recommend that long-term investors buy on weakness.